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Global brands revise local strategies

MILAN — Having straddled the world with retail networks, luxury goods groups are discovering that the hardest part of becoming a global brand may be understanding local culture and habits. Finely tuned strategies are being employed to create ever-more complete shopping experiences and nurture loyalty in the customer base.

Claudia D'Arpizio, a luxury goods specialist at Bain & Company's consumer goods practice, points to the slump in travel after the terror attacks in 2001 and the outbreak of SARS as having started the shift in attitudes.

Before the downturn, cash-rich luxury goods groups worried less about the profitability of their retail network and more about growth and increasing market share. But when travelers stopped traveling, local consumers became more important.

When the tourists started to come back, the mix started changing: not only travelers from the United States and Japan but also people from the Middle East, Russia and increasing numbers from China. Devising the right retail strategy became more complicated.

"Luxury goods groups have realized they need to focus more effectively. They have to segment customers so they can cater for both traveling and local consumers. The local customer base has become more important because it is always there," D'Arpizio said.

Getting to know local consumers, understanding the needs of travelers and then creating the right shopping environments for both segments is a challenge.

The menswear group Ermenegildo Zegna was one of the first companies to track consumers so it could serve their needs better. Zegna, co-chief executive of the company that bears his name, says the firm is going through a complex transition.

"We are moving from being a product-oriented firm to becoming a retail-oriented business. Service and loyalty are key parts of the strategy, which are helping us become a global brand," he said.

For D'Arpizio, the new attitudes are shaping decisions about what type of store to open. Department stores, multibrand outlets and franchising all have a role to play. "The major brands have already built large networks; for them, it has become a question of increasing profitability. For smaller brands, the priority is to have balanced growth strategies," she explains.

Ferruccio Ferragamo, chief executive of Salvatore Ferragamo, points to the firm's retail strategy as one of the main drivers of its growth. In 2005,Salvatore Ferragamo posted €575 million, or $686 million, in sales, a 12 percent rise. Around 68 percent of its sales came from the 221 stores it operates.

The Florence-based firm is expecting the strong performance to continue this year. "We adopted a new retail strategy five years ago. The rise in revenues last year was achieved through opening new stores and growing sales at existing stores," he said.

Luxury goods makers also are looking with renewed interest at online sales. Once dismissed as a channel that would be too difficult to manage and not exclusive enough, the Web now is considered a potentially valuable contact with luxury consumers.

"The Internet has a role to play, especially in areas such as furnishings and accessories," says Zegna.

Yoox, an online store that started in 2000 with €1 million in sales of end- of-season articles, has expanded into a €50 million retail business.It is expecting annual sales growth to continue at the rate of 50 percent.

As the categories and brands it sells have grown, so has its geographical reach. In addition to its Milan base, the firm now ships from warehouses in New Jersey and Tokyo. If tests go well in emerging markets, including Russia and China, Yoox could soon become a global business - as its slogan says, "the never ending store."

The company's chief executive, Federico Marchetti, describes Yoox as a luxury retailer. "We sell only goods that cannot be found in the stores. We are creating a completely new market, one that compliments traditional luxury goods makers. We want to create a fresh, fun and dynamic shopping experience," he says.